Brazil Finally Publishes Provisional Measure To Regulate Sports Betting

July 26, 2023
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Brazil has published a long-awaited provisional measure to amend and implement a sports-betting law four and half years after the law was first signed, with the headline changes including a 18 percent tax on gross gaming revenue, an increase from an anticipated 16 percent.

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Brazil has published a long-awaited provisional measure to amend and implement a sports-betting law four and half years after the law was first signed, with the headline changes including a 18 percent tax on gross gaming revenue, an increase from an anticipated 16 percent.

The provisional measure makes a series of amendments to Law 13756, which was signed by former President Michel Temer in December 2018. The provisional measure took effect immediately upon its publication on Tuesday (July 25), but Congress will have a period of 120 days to approve, reject or amend it.

The 2018 law initially established a tax rate of 3 percent of online betting turnover, before that was amended three years later to a rate of around 5 percent of gross revenue.

Under the provisional measure, that headline tax rate will now be significantly increased to 18 percent of gross revenue, or two percentage points higher than was proposed in an earlier draft of the legislation that was leaked in May.

This rate does not include other corporate and social security taxes, which amount to an additional 9.25 percent. On top of that operators will have to pay taxes to their local municipality.

From a legal perspective, Luiz Felipe Maia of Brazilian law firm Maia Yoshiyasu said it was a matter of speculation why the Brazilian government had chosen to further increase the tax rates applied to sports wagering.

But Thomas Carvalhaes, managing director of Brazilian online gaming platform Vai de Bob, was critical of the change.

He told VIXIO GamblingCompliance: “A sneaky 2 percent increase on an already much higher than other, more evolved, sports-betting markets puts us at 18 percent tax on gross gambling revenue, to which, if we then add additional taxes a company has to pay in Brazil, such as ISS, PIS, COFINS, etc., it can easily get very close to 40 percent.”

The overall move to regulate the market is a positive one, Carvalhaes said.

“However, purely from a commercial or financial perspective, considering that this only contemplates sports betting [and not online casino games, the tax rate] just doesn’t make sense. My fear is that this will discourage most companies from exploring such segments in Brazil in a legal manner.”

Rafael Marcondes Marchetti, legal director at leading Brazilian fantasy sports operator Rei do Pitaco, said: “This may reduce the channelling and may affect investments, advertising and rights while incentivising the illegal market.”

He suggested reducing the planned upfront licensing fee of R$30m (US$6.3m) to compensate for the high tax rate.

“Reducing the fee certainly would not solve the problem of channelling, but could help mitigate negative impacts.”

An upfront fee for a licence is not actually set in the provisional measure, which instead expressly grants Brazil’s Ministry of Finance to determine the cost. Ministry officials have previously stated that they intend to apply a fee of between R$25m and R$30m.

Other key provisions of the new legislation are those which establish a range of new administrative penalties related to sports betting in Brazil.

Among them are penalties for “operating fixed-odds sports betting without prior authorisation from the Ministry of Finance” or “disseminating publicity and commercial propaganda of unauthorised fixed-odds sports betting operators”, essentially banning either the operation or advertising of any unlicensed sports wagering.

The provisional measure also specifies that internet service providers (ISPs) must block unlicensed sites once contacted by the Ministry of Finance, while the Bank of Brazil will implement regulations to block illegal financial transactions.

Maia noted that the new penalties related to the operation or advertising of unlicensed sports-betting sites “will be enforceable as soon as the licences become available, according to the final provisions in the provisional measure”.

“As soon as the licences become available there will be no licensed operators, so what will happen with the sponsorship of football teams? What will happen to advertising? What will happen to the partnerships because the government may take 30 days or six months to grant a licence after application?”

Accompanying Bill, Regulatory Decrees To Follow

Other stipulations include a requirement for operators to publish warnings related to gambling addiction and to report suspected evidence of match-fixing to the Ministry of Finance.

On advertising, the provisional measure grants the Ministry of Finance authority to establish specific regulations but specifies that Brazil’s advertising standards authority CONAR may apply additional self-regulatory guidelines on top of those formal rules.

Other details of the provisional measure include clarifying that an unlimited number of licences will be available to both national and international companies, provided they are established in Brazil.

The measure also provides a definition of sporting events that will be eligible for sports wagering but grants the finance ministry the ability to adopt regulations to limit or prohibit specific bet types.

Sports-betting operators will be expressly prohibited from acquiring the streaming rights to Brazilian sporting events, while the finance ministry will adopt specific regulations related to the use of names and images of sports teams and athletes by betting companies.

Among a series of articles that nod to ongoing investigations related to match-fixing in Brazilian football, sports players, officials and others will be expressly prohibited from participating in sports wagering and sports team owners may not either own or control a sports-betting operator. The Ministry of Sport will collaborate with the Ministry of Finance in regulations relating to sports integrity.

One difference from the earlier draft of the provisional measure is that it does not include stipulations to restrict the regulation or operation of sports betting at either state or municipal level, as is already in place in Rio de Janeiro and Minas Gerais.

In reality, the publication of the provisional measure is just the first step toward implementing a federal regulatory regime for sports betting.

As the measure is effective immediately, the Ministry of Finance can now proceed with publishing secondary regulatory ordinances to map out more specific requirements on licensing, advertising, responsible gambling and technical matters.

In addition to the provisional measure, an accompanying sports-betting bill was presented by the government to Brazil's Chamber of Deputies proposing additional changes to the original 2018 law.

Bill 3626/2023, among other things, will empower the Ministry of Finance to apply temporary penalties such as licence suspensions, require operators to adopt internal controls related to anti-money laundering and enable regulatory fees to be adjusted annually according to inflation.

The bill will be reviewed independently to the provisional measure in both the Chamber of Deputies and Senate and may also be subject to amendments, although Congress is in recess and will not consider it before lawmakers return in August.

In a statement, the Ministry of Finance said it had co-authored both the provisional measure and accompanying bill with the Ministry of Sport and that the two pieces of legislation combined would “ensure the confidence and security of bettors through transparent rules and regulation”.

The finance ministry also said it anticipates an initial R$2bn (approximately US$420m) in annual revenue for the government from legal sports betting, rising to as much as R$6bn to R$12bn “in a market that is fully regulated, established and operating at its full revenue potential”.

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